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The Russian central bank has declared it is seeking compensation totaling $230 billion from the financial institution Euroclear. This move represents a direct response by the Kremlin regarding plans to utilize frozen Russian state funds to support Ukraine.

The Legal Claim

Based on accounts in Russian state media, the monetary authority filed a claim last week for approximately 18 trillion roubles. This figure corresponds to the aforementioned $230 billion claim.

European Union officials will determine later this week regarding a proposal to use around €210 billion in immobilized Russian assets. The proposal involves granting Ukraine with a substantial loan to fund its defence and economic needs.

Most of these assets, totaling €185 billion, are held at the Euroclear depository in Brussels. Euroclear acts as the main custodian for the Russian frozen financial reserves.

Divergent Legal Views

European Union officials have maintained that their proposal is legally sound. They argue rests on the fact that ownership of the sovereign wealth remains with Russia, despite being it was immobilized in EU jurisdictions shortly after the 2022 military offensive of Ukraine.

The Russian government, in contrast, has called any use of the funds as theft. Authorities have threatened retaliatory measures, including confiscating EU corporate holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in peace negotiations, stated on X that Russia "will prevail in court" and regain its funds. He warned that the EU, the euro, and Euroclear "will face consequences" from the proposal.

Strategic Positioning

With statements interpreted as an effort to create division between Europe and the United States, Dmitriev described the assets plan as "a severe attack on the right to ownership and the global financial system established by the United States."

Euroclear declined to provide a statement on the new legal action. It has previously noted it is facing over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While courts in European nations are unlikely to enforce rulings from Russian courts, analysts expect Moscow to pursue implementation in nations with stronger relations to the Kremlin.

"The Bank of Russia could try to implement a Russian legal ruling against Euroclear in jurisdictions like China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if such holdings can be identified," commented a lawyer from an international firm.

European Safeguards

EU officials indicated they are developing measures to discourage other countries from aiding any Russian lawsuits against European entities. Additionally, they are designing protections to shield EU countries with assets in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would provide an first €90 billion loan to Ukraine, backed by the proceeds earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would stay untouched.

Ukraine would only be required to repay the loan in the event that Russia consented to pay compensation for the vast destruction caused during the ongoing war.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an different method for financing Ukraine. This entails common EU debt issuance to fund a loan, backed by unused funds within the European budget.

This alternative move, however, requires full agreement among all 27 member states. Hungary's government, viewed as aligned with the Kremlin, has previously signaled its opposition.

Commenting on Monday, the EU top diplomat, a senior official, said the reparations loan as "the strongest solution" for aiding Ukraine. "The reparations loan is based on the Russian frozen assets, which means it is not drawn from our public funds, which is also important," she remarked. "It also delivers a powerful signal that if you cause all this damage to another nation, you must pay for the rebuilding."